Inflation key challenge for India, says IMF

Predicting that India's growth would slow down from 10 percent last year to an average of 7.5 to 7.75 percent during 2011-12, the International Monetary Fund (IMF) has cited inflation as its key challenge. "

A key challenge for policymakers is to bring down inflation, which is running close to double digits and has become generalised," the IMF said in the September 2011 World Economic Outlook (WEO) released here Tuesday. "Despite policy tightening, real interest rates are much lower than pre-crisis averages, and credit growth is still strong," it noted. Growth activity is expected to be led by private consumption, the IMF said suggesting "investment is expected to remain sluggish, reflecting, in part, recent corporate sector governance issues and a drag from the renewed global uncertainty and less favourable external financing environment". Noting that headline inflation in Asia is projected to average 5.25 percent in 2011, before receding to 4 percent in 2012, assuming commodity prices remain stable, the IMF said against this backdrop, further exchange rate flexibility remains a key policy priority for emerging Asia. Real GDP growth in emerging and developing economies during the second half of 2011 is expected to be about 6.25 percent, down from about 7 percent during the first half of the year, the IMF said. Propelled by China and India, emerging Asia is forecast to continue to post strong growth of about 8 percent. A number of major emerging and developing economies, and advanced economies with very close ties to them, continue to see buoyant credit and asset price growth. Credit growth has been high in Brazil, Colombia, Hong Kong, India, Indonesia, Peru, and Turkey, the IMF said. Among G20 economies, the structural deficit is very large in India and appreciable in South Africa. The experience of advanced economies shows how much policy room may be needed in the event the credit cycle suddenly turns. Elsewhere in emerging Asia, deficits and debt are less of a concern, the IMF said.

DH

India: Inflation nation

There are structural factors at play as well, which cannot be tackled with higher interest rates alone. This puts RBI in a spot, because it cannot be a spectator as inflation expectations cut loose but it also cannot deal with the underlying structural factors with its policy kit....

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'Inflation to remain high for next three months'

Inflation is expected to remain high for the next three months and the Reserve Bank of India’s next move on policy rates depends much on how the situation pans out in the coming three weeks, according to Prime Minister’s economic advisory council chairman C Rangarajan. “Monetary policy has a role to play even in supply-side inflation,” he said while indicating that further hike in policy rates is imminent if the inflation stays high. Inflation may come down to 7 per cent from the present 9.6 per cent level only by March 2012, he maintained. On the other hand, the constraints in maintaining the deserved levels of current account deficit and fiscal deficit have become more pronounced on account of the current global economic scenario even as monetary and fiscal measures are equally needed to balance growth and inflation in the country, according to him. It is difficult to maintain the current account deficit at the current level of 2.5 per cent of the GDP if the world economic situation worsens, affecting the capital inflows into the country. Expenditure side management is also getting difficult on account of ballooning subsidies, especially due to international oil prices, to keep the fiscal deficit at 4.6 per cent of the GDP as targeted, he said. Delivering the foundation lecture for the civil services and IFS officer trainees on Tuesday, Rangarajan said the economy had the potential to grow at 9 per cent but the short and medium term constraints, including inflation, were to be attended to realise the potential. Despite the present constraints, the economy is expected to grow close to 8 per cent in the current financial year though strict measures to manage both the supply and demand side inflation are required to ensure that the kind of high inflation witnessed during 70s and 80s did not return. Growth in incomes is just one dimension of the development and who benefits from the economic development is equally important, he said, stating that social security measures like the National Rural Employment Guarantee Scheme were aimed at addressing these inherent needs. While admitting that problems in land acquisition had been coming in way of faster capacity additions in power sector, he, however, said the conflicting interests in the economy had to be addressed as in the case of land acquisition. Responding to a question, he said the efficiency in use of capital in proportion to output was at acceptable level and further improvement was always desired. He also said the Indian IT sector might get impacted to the extent of economic slowdown in the US and Eurozone. However, he does not see the possibility of the US economy entering the negative growth zone.

BS

Reasons for inflation known, but no light at the end of tunnel

With the persistent near double-digit headline inflation, despite sustained increases in key policy rates by the Reserve Bank of India, turning out to be “a frustrating experience for policymakers,” senior officials from the Planning Commission, the Finance Ministry and the RBI met with a group of academic economic experts and representatives of the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB) at the National Institute of Public Finance and Policy (NIPFP) here last week to address the policy conundrum......

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Top economists agree more rate hikes will not check inflation

India’s top economists have broadly agreed that further interest rate hikes by RBI will not check price rise. They met at a closed door session last week to figure out if they were missing some trick because of which inflation was just not coming down from double digits. .............

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India rate rise cycle near peak – Gokarn

London: India faces inflation of close to 10 percent in the September-November period but price pressure should moderate from December, meaning the peak of an 18-month rate rise cycle is near, Deputy Governor of the Reserve Bank of India (RBI) said on Monday. India raised interest rates last week for the 12th time in 18 months and signalled more was to come. Rates now stand at 8.25 percent and a Reuters poll of analysts shows one more hike is expected this year. "The main motivation for the hike was that we are expecting headline inflation to remain above 9 percent and close to 10 pct for the next three months -- September-October-November," Subir Gokarn told Reuters in an interview. "It would be fair to say we are near the peak. Whether we are at the peak or not is not a judgement I can make." He added: "We anticipate the inflation trajectory will turn down in December for two reasons -- the base effect and the cumulative effect of rate hikes on demand....That's an indication the peak is in sight." "To say this is a sort of aggressive anti-inflationary stance in perpetuity is clearly not right, there are clearly indications that we do expect to see a turnaround." Indian inflation rose to 9.78 percent in August, the highest in a year and among the highest in the developing world. The RBI has stressed its commitment to curbing inflation. India's growth is cooling rapidly, meanwhile, with growth in the three months to June, at 7.7 percent, the lowest in six quarters and well below the 8.5 percent of the previous fiscal year that ended in March. Industrial output growth slumped to 3.3 percent in July, its weakest annual pace in nearly two years. "We do see signs of growth moderating but they are not dramatic," Gokarn said. "The IP number of course was a strong negative signal but looking at tax, credit growth and the analysis of corporate performance, none of these suggest a very dramatic slowdown." He said a soft landing was already under way and the RBI was trying to manage monetary policy in a way that would not allow economic growth to dip too far below 8 percent.

Reuters 

Pension + Updation = Tension

Dear Mangesh,

Your 'VITALINFO' is really useful and I make it a point to read it daily. I wish to add a comment on the RBI Pension Updation Issue and did not know how to send this feed. Hence, I am sending this mail for you to incorporate it in the main body:

"The issue of Pension Upgradation in RBI has been pending for the last several years. The commendable efforts of the United Forum of Employees and the Retired Employees' Associations on the issue have not borne fruits except to the limited extent of stopping RBI from going back on the Upgradation up to a particular period granted by Dr.Bimal Jalan. Several retired employees have also used the RTI for eliciting information from the Government/RBI which would support the arguments adduced in favour of Upgradation. Several well informed and exhaustive letters have been written to the Bank and detailed arguments have been advanced before the Bombay High Court as to why the denial of Upgradation ,on the lines of Central Government pensioners, is not well founded. I have not been able find in the wealth of information argument/s of the Government for not acceeding to the request of the Bank. The only argument of the Government I have been able to cull out from the wealth of material is that the upgradation cannot be granted without an amendment of the relevant RBI Pension regulations and simply on the basis of administrative orders. Even this argument does not explain as to why the approval of the Government cannot be granted if the RBI sends an appropriate amendment of the pension Regulations in deference to the view of the Government (even if the legal department of the RBI does not consider it necessary). Would someone in the RBI fraternity, among whom the 'VITALINFO' is bound to be useful and popular and hence is received by a large number, enlighten me on the issue. Thanks in anticipation."

Mangesh, would you please let me have a line in acknowledgement of the mail? Thanks.

A.Chandramouliswaran, (Former Executive Director), Chennai 

SBI DISBURSES LOANS TO WEAKER SECTIONS

As part of financial inclusion programme, State Bank of India (SBI), country’s largest public sector lender, today provided financial support to 4,500 beneficiaries from weaker sections of the society. The SBI disbursed loans in Delhi under the bank’s differential rate of interest, self help groups and debt swap schemes. The programme focused on broad base financial inclusion by providing banking facilities to the underprivileged sections of the society for their livelihood promotion. Under a catergory, Umar Mohammad, a labourer, has received a cheque of Rs 10,000. Those who attended the programme included Mr Praveen Kumar Tripathi, chief secretary, Delhi government; Mr A Krishna Kumar, Managing Director, SBI; Mr Chandan Sinha, Regional Director, Reserve Bank of India; Mr Sunil Pant, Chief General Manager, SBI (Delhi circle); Mr G R Chintala, General Manager, NABARD. 

http://flashnewstoday.com/index.php/sbi-disburses-loans-to-weaker-sections/

Efforts hard to ignore.............

Dear Mangesh,

I can hardly choose some words for your commendable efforts. Today’s news items have been posted at 4.30 in the morning, the time when most of us are deep into sleep, you are wide awake, sacrificing your comforts and preparing food for thought for us. It is said that there are some persons who work very hard and there are others who hardly work. I find myself in the second category, while people like you, who start their day at 4 in the morning for the benefit of others, are the one who take the country to the new highs. We salute your untiring contribution.

Mukesh Kumar

Assistant General Manager / MOF, CAB Pune

Listing within two years of getting banking licence will be a challenge: ICRA

The requirement to have a bank listed on the stock exchange within two years of receipt of the banking licence so that the promoter shareholding comes down to 40 per cent could be a challenge, credit rating agency ICRA said in a note on the draft RBI guidelines for new bank licences. The challenge emanates from the fact that it would take some time, post-receipt of licence, to commence banking operations while managing teething problems, and that capital market conditions prevailing at the time may not be conducive. “Some corporate entities may be deterred from applying for banking licences as some of the businesses may not be mature for listing on the stock exchanges,” said ICRA. Given the proposed restrictions on non-promoter shareholding, it will be difficult for the promoter to dilute its stake to 40 per cent within the first two years. Moreover, supervision of non-financial entities (owned by the same promoter) by the RBI may prove difficult, the note issued by ICRA said. Considering the larger issues of financial stability and a level-playing field for all players, ICRA said there may be a case for realignment of guidelines relating to capital market and real estate activities for the existing private banks and for the shareholding of existing promoters who continue to hold over 15 per cent in existing private banks. Further, realignment of guidelines will be required for the consolidation of operations of the existing groups that continue to operate via non-banking routes. On improving banking penetration, the rating agency said, given the more profitable nature of urban/metropolitan operations, the entry of new private banks is likely to intensify competition further in these areas. The requirement of having to open branches in under-banked areas could exert pressures on the profitability of the new banks in the short term even as the stipulation could bring in some improvement on the financial inclusion front, ICRA said. Referring to the stronger corporate governance structure envisaged in the draft guidelines, the agency said it would serve to further mitigate some of the concerns associated with the entry of corporate entities in the banking sector.

HBL

Draft RBI norms may deter cos from opening banks

Norms relating to the ownership and listing of new private banks, as proposed in the Reserve Bank of Indias (RBI) draft guidelines, may discourage some companies from applying for new banking licences, rating agency Icra said today. “The requirement to bring down promoter shareholding to 40 per cent and have the bank listed on the stock exchange within two years of receipt of the banking licence could be a challenge, given it would take some time after the receipt of a licence to commence banking operations while managing teething problems, and that capital market conditions prevailing at the time may not be conducive,” it said. The central bank, in its draft guidelines released last month, said promoters’ stakes in new banks through non-operative holding companies should be reduced to 40 per cent within two years. The stake should be further pared to 20 per cent in 10 years and 15 per cent in 12 years. RBI also said new banks should be listed on local bourses within two years of securing a licence.  Icra said in order to provide a level playing field, the activities of the banks  promoters in capital markets and the real estate sector need to be examined and aligned with the existing norms. The consolidation of operations of existing groups that operate through nonbanking routes also needs to be addressed, it said.  According to the rating agency, the proposed guideline mandating one fourth of a new banks branches in rural areas may exert pressure on the profitability of these lenders in the short term.  Icra said a higher capital adequacy ratio would serve as a cushion to depositors against volatilities faced by banks in the start-up phase. RBI has proposed the capital adequacy ratio for new banks at 12 per cent for at least three years, compared with the nine per cent requirement for existing banks. 

BS

RBI fines Uma Cooperative Bank for violating KYC norms

The Reserve Bank has imposed a penalty of Rs 1 lakh on Vadodara-based Uma Cooperative Bank for non-adherence to regulatory norms. "RBI has imposed a monetary penalty of Rs one lakh on Uma Cooperative Bank Ltd, Vadodara (Gujarat), in exercise of powers vested in it for non-adherence to Know Your Customer (KYC) norms," the apex bank said in a statement. The Reserve Bank India (RBI) had earlier issued a showcause notice to the bank, in response to which the Cooperative Bank had submitted a written reply. "After considering the facts of the case and the bank's reply, as also personal submissions in the matter, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty," the RBI said. The RBI has penalised over 60 small banks so far this calendar year, for lapses in implementing customer identification norms and various other violations. The penalties ranged from Rs 1 lakh to Rs 5 lakh.

IE

RBI denies approval for HSBC-RBS deal

The RBI has refused to give its approval for the purchase of RBS India’s retail and commercial assets by HSBC. The regulator has questioned RBS as to why they are doing the deal at all. It is for HSBC and RBS to now satisfy the regulator, reports CNBC-TV18’s Gopika Gopakumar quoting sources. CNBC-TV18 learns that the HSBC-RBS deal was announced a year ago. However, this deal could be stalled now because the RBI is not convinced yet, and hence, it has denied approval for this deal. Sources say that the bank has questioned RBS on a necessity of this deal and as to how they will do priority sector lending once they sell-off all their retail and commercial operations to HSBC since foreign banks have to do 32% priority sector lending. Earlier, RBS was looking to sell around 31 branches with 1800 staff to HSBC.  RBS tells CNBC-TV18 that they will continue to work closely with HSBC and the regulators to get approval. “We also look forward to completing the deal in a matter that satisfies regulatory requirements,” added the bank. On the other hand, HSBC has said that they will continue to engage with the regulator and await its approval. However, sources confirm that the RBI is clear on its front and the ball is now in the court of RBS and HSBC to negotiate and comeback to the regulator with a satisfactory explanation. 

Moneycontrol

BoM likely to get Rs. 800 cr capital infusion in FY12

Post-capital infusion, the capital adequacy ratio of the bank is likely to go up to 14% from the present level of 13.35%

New Delhi: Pune-based public sector lender Bank of Maharashtra is hopeful of receiving Rs. 800 crore from the government as part of the capital infusion plan in the current fiscal. “We have approached the government for additional capital infusion of Rs. 800 crore. This is under process and we expect to get it before March, 2012,” Bank of Maharashtra CMD A S Bhattacharya told PTI here. Post-capital infusion, the capital adequacy ratio (CAR) of the bank is likely to go up to 14% from the present level of 13.35%, he added. The Reserve Bank of India (RBI) prescribes banks to have a CAR of 12% as part of its prudent risk management measures. Bhattacharya, however, noted that the bank had no plans to raise money through either through equity or bonds in the current financial year. In the meantime, government has said that a committee had been formed to look into the matter of recapitalisation of banks. At present, 6-7 public sector banks, including nation’s largest public sector lender State Bank of India (SBI), have approached the government for capital infusion in order to boost their capital adequacy ratio, which will help in further lending to customers. Also, implementations of Basel-III norms, which will start from 2013, require recapitalisation from the government. Secretary in the financial services department D K Mittal had earlier said that though this year budget for bank recapitalisation was Rs. 6,500 crore so far, there would be a second supplement in December to infuse further capital into selected public sector banks. Bank of Maharashtra, which has a government holding of close to 79.5%, has a total branch strength of 1,546 across the country. It has registered a 3% increase in net profit to Rs. 122 crore in the first quarter of the current fiscal. Its net interest income (NII) rose by 44% to Rs. 591.4 crore during this period. 
Mint

Time for RBI to pause, say economists

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“We, therefore, stick with our forecast for 8.25 per cent as the peak and for RBI to remain on hold in the balance of the year and early next year,”....

Growth vs Inflation - Too Dangerous to Pause Now

The RBI rate hike last week set the cat among the pigeons. Activity in India is undeniably slowing. Add to that the global slowdown. And it is easy to see why business is imploring for a pause in the tightening. I don’t think that there is much more tightening left to come, but a pause needs to be timed well. Now is not that time. It may have been if the RBI had moved more aggressively last week. True the economy is slowing, but is it slowing sufficiently for inflation to decline on its own? Take away the volatile capital goods component and non-capital IP grew 6.7% in July, the fastest in 4 months. Indirect tax for the first five months of this fiscal year is up 24% despite the duty cuts on petroleum products. Exports grew 44% in August and imports 41%. On the other hand, August headline inflation accelerated to 9.8 %, domestic input prices rose sharply and core inflation jumped to 7.7%, twice the historical average. Critics claim that these are yesterday’s news. One needs to look forward as monetary policy affects the future. True, but core inflation can decline if capacity eases. Our best guess is that trend GDP growth has fallen to 7-7.5%. After last quarter’s 7.7% GDP growth, the output gap (actual GDP less trend GDP) has risen to 1%. For core inflation to fall, growth needs to slow below trend turning the output gap to negative. This happened in 2009 when growth fell below 6%. But nothing today suggests that growth will fall to such levels. Capacity can also ease if investment raises trend growth. A key factor holding back investment is macroeconomic uncertainty, both global and domestic. There is little the RBI can do about the first, but it can reduce domestic uncertainty by inducing inflation to peak and growth to trough early. The quicker the domestic uncertainty is resolved, the sooner investment will resume. This requires the RBI to act more aggressively to bring the cycle to an early end not less aggressively to prolong the cycle. We know since 1972 (Bob Lucas) that the growth-inflation trade-off exists only when expectations are stable not when they are rising as in India now or falling as in Japan in the 1990s. Empirically, we know since the late 1980s (Stan Fisher) that the tradeoff exists only when inflation is low not when the core inflation is twice its historical average. Instead curbing inflation by sacrificing nearterm growth is essential to anchor inflationary expectations and safeguard medium-term growth. Separately it is also argued that inflation is structurally high as nonfarm growth has outstripped agricultural growth. Therefore, policy needs to tolerate a higher “normal” inflation. Nothing can be more dangerous. Many economies have tried controlling inflation at a higher “normal” only to find that it quickly goes out of hand (Latin America in the 1980s and 1990s). We are not there yet but expectations are coming unhinged. The year-ahead inflation expectations of household have been rising since 2009, but till September last year they were below actual inflation. Since then inflation expectations have not only risen relentlessly but are markedly above realized inflation. Households till late last year believed that the authorities’ could bring down inflation, today they are losing faith. Tolerating a higher normal inflation will further erode the authorities’ credibility. 

ET

You can bet on 10% deposit rate

MUMBAI: Last week's 25 basis point interest rate hike may not be the last by RBI with many expecting that Governor D Subbarao will announce another 25 basis points increase during his mid-term policy review on October 29. But in case of deposit rates, it now appears that a 10% return is the best that depositors can look forward to, with bankers not facing any pressure to raise deposits because of the improved liquidity scenario. This might also be the best time for depositors to lock-in for long-term deposit schemes since most banks are betting on interest rates to start moving downward within two years and are offering better rates for short-term deposits. "This is the right time to lock into long-term deposits. At the most there may be a 25 to 50 basis points increase in shortterm deposits," said K R Kamath , chairman, Punjab National Bank. "If there is a pick up in credit, banks are tempted to offer slightly higher rates to grow loans but at present we have enough liquidity," he added . On Monday, Dhanlaxmi Bank became the first lender to hike lending rates after last week's rate hike. It howeverleft deposit rates untouched.  The main reason why bankers are unlikely to raise longterm deposit rates is that there is ample liquidity in the market. Banks have added Rs 3,01,131 crore to their deposit base up to August 26 this year as compared to Rs 1,81,291 crore last year. During the same period their loan book has grown by Rs 102,779 crore as against Rs 109,189 crore last year. This has enabled banks to repay some of their high-cost deposits and offset some of the increase in the cost of funds. Bankers also expect that interest rates will come down in a couple of years and most banks have therefore not raised deposit rates at the longer end. In fact for many banks' three-year deposits offer lower returns than two-year deposits. Banks with a small share of retail deposits are likely to relook at their deposit rates at the earliest. Typically an increase in deposit rates encourages customers to relook at idle funds in their savings account and transfer the same into FDs. 

ET

RBI policy action in line with mkt expectations : BoB

Problem is Rahul-flation: Why RBI is failing with rate hikes

Why is inflation refusing to lie down and play dead when the Reserve Bank has trained all its guns on it? Why is a government headed by an economist, and who is further surrounded by even more first-rate economists (Kaushik Basu, C Rangarajan, and Montek Singh Ahluwalia), not able to do anything more than wring its hands in despair about inflation?..........

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IMF in a quandary over use of gold sale proceeds

...With the price of the yellow metal surging further subsequently, the gold reserves of the RBI today stands shining amid erosion of other assets in the face of escalating inflation, proving that gold still continues to be a safe haven for bankers and gold-affordable retail investors alike, market analysts quip.....

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RBI Governor D Subbarao has earned more critics than admirers for his bold decisions

MUMBAI: When career bureaucrat Duvvuri Subbarao took the wheel at Mint Street in September 2008 at a time the financial world was crumbling, the popular belief was New Delhi would get a firm handle on monetary policy. The Lehman Brothers collapse and the 'synchronised' handling of the crisis between the government and central bank strengthened the belief. Three years later and the next crisis possibly round the corner, the story is different. Subbarao has earned more critics in recent months for supposedly killing growth, but a few admirers too for his conviction. Events are unfolding to create a landscape similar to the one that confronted his predecessor Yaga Venugopal Reddy - heaps of criticism for supposedly stifling growth and innovation. "It was unnecessary given the sharp deterioration in the global environment and a significant slowdown in domestic activity," said Tushar Poddar of Goldman Sachs after the governor raised policy rates 25 basis points last Friday amid slowing economic growth. A basis point is 0.01 percentage point.

INDUSTRY WAS NOT FAR BEHIND

"At a time economic policy should focus on the creation of jobs, it is unfortunate that the economy is being forced into a sluggish growth phase," said B Muthuraman, president, Confederation of Indian Industry.  Subbarao, who parroted the policy stance of global central bankers during much of his first term, is deviating significantly. Policymakers in developed nations are keeping rates near zero and Federal Reserve Chairman Ben Bernanke has promised to keep it low till the middle of 2013. Most Asian central bankers have left rates untouched this month and Turkey and Brazil have cut interest rates. Subbarao is the odd man out by promising to keep raising rates till prices cool.

MANY ADMIRE HIS INDEPENDENCE

"Subbarao is a pragmatic and astute central banker who has taken independent decisions based on his well-researched conviction," says Madan Sabnavis, chief economist at rating company Care.  "He has recognised inflation as being the single most important malaise afflicting the economy and pursued the goal of increasing rates, notwithstanding the pressures being exercised from different quarters, displaying a lot of character."  Industry has been seeking a halt to raising interest rates, which started with 'baby steps' in 2010 with the governor's public admission of confusion with reference to his position being similar to a warrior caught in 'padmavyuha', a battle formation that is easier to get in, but difficult to get out.  

ET

Time constraint.........

Sincerely regret that due to time constraint, very few posts could be included in today's VITALINFO.  Please bear with......

Inflation effect: Equal number of Rs 1000 and Rs 500 currency notes to be printed for the first time

NEW DELHI: Rising prices are eating away the value of money, literally. The government is phasing out or printing fewer low-denomination currency notes, and printing more notes of higher denomination such as the 1,000 note. For the first time, India will print as many new Rs 1,000 denominated notes as Rs 500 ones in 2011-12. In value terms, this will be the first time Rs 1,000 notes will account for more money printed than Rs 500 notes, which were the mainstay of high-value cash transactions for some time. Thanks to inflation, the Rs 500 note is losing its position of pre-eminence among the currency notes printed by the Reserve Bank of India. Eleven years after the Rs 1,000 note was introduced in October 2000, the RBI has ordered 2,000 million new amber-red Rs 1,000 notes. This is double the number ordered last year. The order for olive-and-yellow Rs 500 notes, which came into circulation in 1987, has been halved to Rs 2,000 million from last year. In value terms, the new Rs 1,000 notes will add up to Rs 2 lakh crore, and Rs 1 lakh crore of Rs 500 notes. "ATMs can now dispense up to Rs 40,000 in one go. The Rs 1,000 notes are more convenient to dispense, fueling greater demand," said a finance ministry official. Even banks want more Rs 1,000 notes to stock their ATMs, cutting down on the number of trunks full of cash they need to move between banks and cash dispensers. The Rs 100 note is still the most-printed one, its print order growing from 4,300 million to 6,100 million this year. But most banks have minimised the volume of Rs 100 notes at automatic cash-dispensing machines. Printing of the Rs 50 note has been slashed to 1,200 million from 2,000 million last year. "Lower denomination banknotes run out sooner and increase both capital cost and operating costs (of ATMs)," the RBI said in its annual report for 2004-05, commenting on the rise in demand for Rs 500 notes. The Rs 1,000 currency note is the biggest one printed in India, measuring 17.7 cm by 7.3 cm, a good 1 cm longer than the Rs 500 note. The RBI did not respond to queries by ET. Banknotes worth Rs 1,000 and Rs 10,000 each were in circulation before Independence, but were demonetised in January 1946 to curb unaccounted money. The Rs 1,000, Rs 5,000 and Rs 10,000 face-value notes were reintroduced in 1954, but were demonetised again in January 1978. The RBI is authorised to issue notes with a face value of up to Rs 10,000, and coins that are each worth Rs 1,000. 

ET

Hic, hic hurray

RBI Governor D. Subbarao is an artful speaker who always spices up his high-finance speeches with real-life anecdotes from the wide and varied positions he has held. He recently told his audience, which consisted mainly of students of the International Institute of Foreign Trade, who were just about born when India liberalised its economy in 1991, how before 1991 PSUs would be used to solve every problem. He was in the government when N.T. Rama Rao was the chief minister in Andhra Pradesh. Rama Rao was concerned about growing alcoholism among the poor and discussed with Mr Subbarao.  Mr Subbarao decided that banning liquor would not help and finally said that if they had to drink, the government could at least see that they get good bottled liquor. And that’s how Mr Subbarao had to set up the Andhra Pradesh Breweries Corporation. It’s a pity that the RBI did not put his brilliant speech on its website. Perhaps it is not too late!

Deccan Chronicle

Rangarajan pegs FY12 growth at 8%



PMEAC chairman says rate increase by RBI may have some impact on economic growth



After the Reserve Bank of India (RBI) effected another round of increase in key interest rates, the Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan, has projected the economic growth in this financial year to slow to about eight per cent from 8.6 per cent a year ago. PMEAC had earlier projected the economic growth for this financial year at 8.2 per cent. Rangarajan, clarified he did not mean that the economy would definitely not grow by 8.2 per cent. “GDP growth at around eight per cent means in the region of eight per cent, which might even be 8.2 per cent,” he explained. He said the rate increase by RBI might have some impact on economic growth. However, Rangarajan called further monetary tightening by the central bank as the ‘correct’. “With inflation at over nine per cent, the central bank had no other alternative.” On Friday, RBI raised policy rates by 25 basis points in its mid-quarter monetary review, its 12th such increase since March 2010. As a result, the repo (short-term lending) rate stands at 8.25 per cent and the reverse repo (short-term borrowing) rate at 7.25 per cent, which means real policy rates are still negative if the wholesale price index-based inflation is taken into account. Inflation has been over nine per cent for the ninth month in a row in August, when it stood at 9.78 per cent. The successive increase in rates by RBI has decelerated economic growth for the second quarter in a row when it stood at 7.7 per cent during April-June, against 8.8 per cent growth in the corresponding period last financial year. Industrial growth also plunged to a 21-month low of 3.3 per cent in July against 9.9 per cent in the same month a year ago. Earlier, Rangarajan had said the economy would grow by 7.9 per cent in the second quarter and 8.3-8.4 per cent in the third and fourth quarters of this financial year. These estimates are seen as very optimistic, as most economists have revised their projections for India’s economic growth to below eight per cent for 2011-12.

BS 

FUNDING ECONOMIC SOVEREIGNTY

After having tried unsuccessfully for many years to get the Union ministry of finance and the Reserve Bank of India (RBI) to agree on using a part of foreign exchange reserves to finance infrastructure, the Planning Commission has now mooted the idea of a sovereign wealth fund (SWF).

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Discard old prescription

This refers to the news report, “Aam admi done in again as RBI tweaks repo rate further” (September 17). The Reserve Bank of India has once again used an old prescription to contain inflation, and increased the interest rates for the twelfth time. Practically speaking, the RBI’s monetary mechanism has fallen flat in containing, let alone curbing, inflation. The lack of a co-relation between the two is puzzling economic pundits as well. In the process, industrial activity has come down because the RBI mops up liquidity from the market in an attempt to bring down inflation.  Investment is being diverted from productive sectors into bullion. A jittery world economy is unable to discipline commodity pricing and crude oil prices no more correlate with demand. The latest tightening of rates by RBI can only serve to further disturb market sentiments.  What merits serious concern here that is the distributor/retailer nexus which has been leveraging the overall uncertain mood of the economy with predatory pricing. The latest fuel hike that will justify mark-ups to consumer pricing must be seen through this prism, and accordingly action must be taken by the authorities.

The Pioneer

How to tame hunger

Food inflation in August accelerated to 9.78% year on year, the fastest it has been in 13 months. This is over and above the high inflation of last year. As it has been doing all along, an alarmed RBI has tried yet again to combat this by hiking interest rates by 25 basis points - its 12th hike in the last 18 months. But obviously, this is not going to reduce demand for food nor food inflation.....

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RBI likely to hike key policy rate till Jan 12: Experts

New Delhi: The Reserve Bank of India (RBI) is likely to maintain its hawkish stand and further increase key policy rate up till January 2012, to tame inflationary pressures, say experts. The Reserve Bank on Friday hiked its key rate by 25 basis points, the 12th time since March last year, to tame high inflation overlooking sliding growth. The short-term lending (or repo) rate to banks by RBI stands revised to 8.25 percent, while the borrowing (reverse repo) rate is set at 7.25 percent. Industry experts project the WPI inflation, which rose to 9.78 percent in August-- much higher than the RBI's comfort level of 5-6 percent-- to remain above 9 per cent level until December this year. The next policy review is due on October 25. According to a research report by global banking giant Standard Chartered, "RBI will increase the policy rates by 0.25 percent at the October policy as well. If anything, the tone of the policy statement keeps the door open for further rate hikes after October." "We do not rule out further rate hikes up to January 2012," brokerage firm Angel Broking said in a research note. Rating agency Care expressed similar views. "RBI is likely to continue with its anti-inflationary stance till the year end," it said. Brokerage firm Elara Securities also expects the central bank to further raise policy rates by 25 basis points in the October policy review.  "If the domestic inflation scenario does not worsen and macroeconomic scenario stabilises at current levels, we view rates peaking at 8.5 percent," the report said. More rate hikes by the Central Bank are in store as the RBI in its mid-quarterly review of monetary policy has cautioned that the current level of high inflation makes it imperative to continue with the anti-inflationary stance and tight monetary policy. The future monetary policy stance, it said, would depend on the level of inflation. The RBI has raised rates by a total 350 basis points since March 2010. Despite this, the inflation has stubbornly remained near double digit, while the first quarter GDP slipped to 7.7 per cent from 8.8 percent a year ago. Standard Chartered, however, believes that India is only using one policy lever -- increase in interest rates – to counter inflationary pressures, and there is very little emphasis on other policies. "Fiscal policy remains accommodative and might have contributed substantially to demand-side pressures in the recent past," it said.

Zee News

RBI mid-quarter review: the preoccupation with inflation

...Monetary policy operates with a lag. Hence, a premature withdrawal of monetary tightening will be counter-productive and harden inflation expectations. The mid-quarter policy statement does not give a clue as to when the monetary tightening will begin to be phased out. Evidently the central bank will wait for a reversal in the inflation trajectory. Global developments will, of course, play a part......

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Value of cheque transactions up 11%: RBI

The total value of transactions carried out through cheques across the country in July 2011 amounted to Rs 8.99 lakh crore, which is 11 per cent higher than that in the same month last year. Banks had cleared cheques worth Rs 8.10 lakh crore in July 2010, according to the Reserve Bank of India (RBI) data. The total number of cheques cleared by banks across the country in July this year, was, however, down by 2.17 per cent from the same month last year. A total of 11.61 crore cheques were cleared by banks during the month under review, compared to over 11.87 crore in the corresponding month of 2010. During the April-July period, the total value of the transactions carried out using cheques stood at Rs 33.51 lakh crore, as against Rs 33.27 lakh crore in the first quarter last fiscal, a marginal rise of 0.7 per cent. In addition, a total of 44.03 crore cheques were cleared by banks during the first four months of the current fiscal, a decline of almost 3.8 per cent from 45.77 crore in the April-July period a year-ago. In July, the Mumbai region reported the highest number of cheque clearances as well as the maximum transaction value for any zone. Banks in the Mumbai region cleared a total of 1.99 crore cheques, with a total value of over Rs 1.27 lakh crore. In the Delhi region, banks reported that 1.35 crore cheques with a total value of a little over Rs 1.18 lakh crore were cleared in July.

IE

Global financial crisis II: the challenges for India

“Even as RBI justifies this rate hike to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective,”........

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Implications of RBI rate hike in credit policy

This credit policy review was in line with market expectations. The Reserve Bank of India (RBI) has raised the repo rate by 25 bps to 8.25 percent, and the reverse repo rate also by 25 bps to 7.25 percent, to arrest the rising inflation rate. The cash reserve ratio (CRR) was left unchanged at six percent.  The RBI raised the key lending rates for the 12th consecutive time in 18 months to 8.25 percent. According to the RBI, the annual inflation rate surged to 9.78 percent for the month of August - the highest in over a year - driven by rising prices of food and manufactured products. The latest inflation number indicated the need for the continued tightening. Current global and domestic factors led to the continuing anti-inflation stance.  The repo rate is the rate at which banks borrow money from the RBI. When the repo rate increases, borrowing from the RBI becomes more expensive. The RBI raised its repo rate, at which it lends to commercial banks, by 0.25 basis points to 8.25 percent and increased the reverse repo rate, the rate it pays banks for deposits, to 7.25 percent.  This move is different from what other central banks are doing. The European Central Bank, Bank of England, and Swedish Central Bank continued to hold rates steady at reviews last week, amidst easing inflationary pressures in the Euro zone and concerns of weakening growth prospects. Some Asian central banks, including Malaysia's and South Korea's, paused in their fight against inflation, while Brazil recently cut interest rates.  Each successive credit policy review has been tough for the RBI. The unfavourable micro and macroeconomic indicators make the RBI's job unenviable. Considering the present situation , analysts were expecting a rate increase of 25 basis points. It had to take a call on interest rates - whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. The RBI, in its last review meet in July, raised the repo rate by 50 bps to eight percent and the reverse repo rate by 50 bps to seven percent. The apex bank has hiked the key policy rates 11 times since March 2010 to curb inflation, which has been hovering above the nine percent mark since December last year.  There were concerns of growth slipping below the seven percent mark in 2011-12 . There are negative developments such as the sovereign debt crisis in Europe, concerns of a US slowdown, lower-thanexpected July 2011 IIP growth of 3.3 percent as compared to 8.8 percent in June 2011 and 9.9 percent in July 2010. Despite all efforts, inflation has not abated.  Most analysts felt the central bank may tighten the monetary policy further considering the August inflation number , which came stronger than expected. There is significant global turbulence right now. The slowing pace of economic growth and the worsening global economic outlook were major considerations. 

ET

RBI governor Duvvuri Subbarao: Is this man killing India's growth?

A young man, dressed in formals, stepped out of the Reserve Bank headquarters in Mumbai on a hot April afternoon, a little bemused. As he waited for his car, he recalled the conversation that took place minutes ago. As an economist and a number-cruncher, he was prepared to speak his mind, though tempered by a language one uses while chatting with the RBI governor. But there was something that Governor  Duvvuri Subbarao was strangely insistent to find out from him and other economists, who had assembled.  It was one of the customary prepolicy meetings where the governor tries to figure out what the world outside beyond Mint Street is thinking. "He kept on asking something basic, theoretical, almost text bookish...Today, when I when think back, I understand why," he said after Friday's rate hike. The guv's question that reminded him of his undergrad days: 'Which of the two views would you subscribe to - first, if you want to tackle inflation, there is no other way but to sacrifice growth; second, if you want higher growth, learn to accept higher inflation, and after some time growth will take care of inflation.' They aren't exactly the two sides of the same coin. For central bankers and economists, they are two divergent paths - almost like Frost's two roads that "diverged in a yellow wood" and sorry, you can't travel both. At the meeting, Subbarao was simply fishing for a reconfirmation from 'outsiders' before he and his men took the first road. The visitors, like the central banker, felt that second road was far too dangerous.  None of them thought it was time to think out of the box - something that Kaushik Basu, the government's chief economic adviser and a darling of the electronic media, wants them to. The LSE-trained Basu's bespectacled face, carrying a hint of a smile, frequently appeared on business channels last week; he wasted no breath in advocating that RBI should pause. Well, RBI didn't, sparking a train of angry sound bytes from corporates, many of them who are snooping around for cheaper money to refinance loans. Basu said he has reservations about Friday's rate hike.

What FM Thinks

Finance minister Pranab Mukherjee, who Basu reports to, appears less bothered. The seasoned politician, who has to divide his time between presiding over multiple committees and tackling sudden surprises like Anna Hazare, comes across as someone who's comparatively less concerned by RBI's actions than a few of his predecessors. At least, till now.  But that can change with a few more rate hikes and the sound bytes can become shriller in the months to come. Subbarao, the bureaucrat-turned-RBI governor could turn less 'consultative' as he approaches the end of his new term, and a desperate government may run out of patience as it battles a newly revived Opposition and nears a crucial election. There are recent moves, albeit at a more subtle level, that indicate New Delhi and Mint Road are working at cross-purposes.  Fully aware that a hawkish RBI will do whatever it takes to make money more expensive, the government loosened the rules on foreign loans for corporates. You don't pave the way for easy money when the central bank is trying to turn off the tap. There may be more such instances when the government has to give in to corporate pressures as growth slows down. Corporates have a singular point: 12 rate hikes, with a few of them unexpectedly aggressive ones, have failed to bring down inflation; so RBI has failed, and doggedly pursuing rate hikes will kill growth. Companies that are panicking the most are the ones whose loans are coming up for repayment.  For RBI, it's risky as well as a far too simplistic a line to toe. Central bankers, typically, are like freemasons: they talk little, and whenever they do, it's in a language that few understand outside their circle. Subbarao has been trying to change that.

In simple, clear English, he spells out why RBI has taken a measure, and even made power point presentations - the first RBI Guv to do so - to drive home his point to industry bodies. He used the same language to say that the government has done little to control inflation and even hinted that the growth and production data churned out by government agencies are dubious.

ET 

Maharashtra calls for review of RBI prudential norms

The Maharashtra government on Saturday made a strong pitch for review of Reserve Bank of India’s prudential norms relating to all loans where government guarantees are being insisted upon, in a time-bound manner. This was necessary so that the commitments of the state government under the Fiscal Responsibility Act are honoured and the banks start taking coercive actions against defaulters, rather than proceeding to invocation of guarantees without liquidating their assets. Chief Minister Prithviraj Chavan made the request during the meeting of western zone states chaired by Finance Minister Pranab Mukherjee to review state of crop loans, debt waivers and bank self help group linkage programmes. Chavan said government guarantees were being asked for before the loan amount was sanctioned by the National Bank for Agriculture and Rural Development for rescheduling crop loans after natural calamities. Such guarantees are also asked for the loans extended by them to cooperative sugar mills and spinning mills. However, the chief minister said the basic premise for asking for the guarantee has been questioned by the courts and they have said the default amounts standing against loans guaranteed by the government should be first recovered by selling off the assets of the borrower who has defaulted, before the banks approach the government to meet its obligations against the guarantee. The chief minister said the state government has taken steps and continues to do so to reduce the risk of extending loans by way of equity infusion, interest subvention, provision of viability gap funding, waiver of taxes and through loan waivers at periodic intervals. On agriculture credit, Chavan said, out of the target of Rs 15,508 crore for kharif season in Maharashtra, cooperative banks have already disbursed 100 per cent of its target share of Rs 7,700 crore, while commercial banks have disbursed credit worth Rs 4,108 crore, against the target of Rs 6,850 crore. Regional rural banks have so far disbursed Rs 597 crore, against the Rs 985 crore target. Chavan told the finance minister that the share of commercial banks in crop loan disbursement has increased since 2001-02 from 45 per cent to 70 per cent at the all India level. However, in Maharashtra, the performance of commercial banks was around 50 per cent. He asked the CEOs of commercial banks to enhance their efforts for the current year to increase their share in crop loan disbursement.

BS

In softer subtext, RBI says hair not afire

For Governor Duvvuri Subbarao, it’s a return to ‘baby steps’ before deciding which path to trod, given the intractability of the inflation problem and the fast deterioration of the global economy........

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'Monetarist' RBI on wrong foot; hikes prick growth: Godrej

With 12 rate hikes by the central bank in eight months, the question is if Reserve Bank’s tightening is really serving a purpose? Despite a stubborn inflation, corporate India has had doubts if RBI’s rate hike cycle is the right tool to tame it down, considering the risk it doles out to growth.  Slamming RBI’s 25 bps rate hike on Friday, Adi Godrej, chairman of the Godrej Group said that the interest rate hikes have not helped contain inflation. As India Inc now sees a blurring growth story, Godrej holds, “RBI’s rate hikes have damaged the economic growth.” On CNBC-TV18's Forbes India Show, he said the inflationary pressure at present is due to global commodity prices and not because of excess money supply in the Indian economy. "And, therefore, to raise interest rates to fight this inflation did not make sense," he added.  Continuing with his sharp reaction, Godrej said 'monetarist' RBI takes rate hikes as the only big solution. He also held that the rate hike cycle should have reached the peak a couple of months ago.  Criticizing the central bank’s actions, Godrej further said RBI made a blunder allowing the rupee to depreciate to one of the weakest currencies in the world. "When you allow rupee to fall, commodity inflation globally has an even greater effect on your inflation," he said, adding that RBI should have ensured that rupee stayed very firm to other currencies to arrest inflation.

Moneycontrol

Inflation is still very high and unacceptable: Pranab Mukherjee

Inflation in India is still "very high and unacceptable," Finance Minister Pranab Mukherjee told reporters on Saturday. Headline inflation for August rose to 9.78%, its highest level in more than a year, data showed on Wednesday. Mukherjee also said he expects lending to farmers to be in excess of 5 trillion rupees in the 201112 fiscal year. The Reserve Bank of India, on Friday, lifted its key lending rate, called the repo rate, by 25 basis points to 8.25%, in line with expectations, as it persisted its fight with inflation.

DNA

Fuel price hike is good news: Montek

Planning Commission today said the decision of oil marketing companies to raise petrol price by Rs 3.14 per litre is good news and will provide credibility to the economic reforms process. "What has happened (fuel price hike)... on that front it is a good news. I regard that as a vindication...(and) an increase in credibility of basic part of the reforms strategy," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters here. State-owned oil companies, including IndianOil, Bharat Petroleum and Hindustan Petroleum, yesterday hiked petrol price citing impact of depreciating value of rupee against dollar on import of crude oil. After the hike, petrol price increased to Rs 66.84 per litre in Delhi. This is the second hike in four months. Oil companies had last increased petrol price by Rs 5 per litre on May 15 this year.

IE

Petrol price hike to further fuel inflation: RBI

The Reserve Bank of India (RBI) today said the Rs 3.14 per litre hike in petrol price, announced yesterday, will further fuel inflation, which is nearing 10 per cent. "This (petrol price hike) will have a direct impact of seven basis points to WPI inflation, in addition to indirect impact with a lag," the RBI said in its mid-quarterly review of monetary policy. Overall inflation in August rose to 9.78 per cent, which is much higher than the RBI's comfort level of 5-6 per cent. "In the current scenario, with the likelihood of inflation remaining high for the next few months, rising inflationary expectations remain a key risk," the RBI said after hiking key interest rates by 25 basis points. The central bank further said the current level of high inflation makes it imperative to continue with the anti-inflationary stance and tight monetary policy.

IE

Another blow: Should RBI pause despite high inflation?

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Back to rear-window economics

....As we all realise, monetary policy, or any policy, has to be made on an ongoing basis. But RBI does not do that; instead, it has the horrific habit of practising Rear Window economics. Now that Hitchcock movie was one of the most classic of all horror movies, but that is scant justification for RBI inflicting on India the horrors of its inadequate, and most likely wrong, policy making.....

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RBI fighting a losing battle – Meeta Sengupta

The Reserve Bank of India has raised its interest rates again this week in an effort to curb inflation that has seen double digit growth in recent months. This is another rate hike in the long series of rises started by the RBI in March 2010, yet inflation continues unabated. This is hardly surprising since the tool that the RBI has is a blunt instrument. The tool -- interest rates work to control inflation only if there is excess liquidity in the system that needs to be mopped up, lest it power the increase in prices. In our case, the system is far more complex, and controlling just one aspect has not proved to be very effective -- in fact interest rates have risen so much that they are now an impediment to our much vaunted economic growth. The forces that work on inflation are not just the supply (and demand) of money, which is what the Reserve Bank is trying to control by making it more expensive to borrow money. The supply and demand of real goods and services are equally more important determinants of the price levels. We, in India have had the good fortune of high economic growth with rising income levels, which has spurred demand, both for essentials and luxuries.  Our government is trying to build its version of a social security network via schemes like the NREGA among others. The resultant incomes are spent on food and other essentials while the supply of these has not kept pace. This will inevitably lead to inflationary pressures that the RBI's tools cannot do anything about. Much has been written about the supply constraints in the agricultural sector, in infrastructure -- all of which feed inflation and are beyond the purview of the RBI.  Systemic constraints remain too - much if India's money is not in the banking system at all. These markets do not even participate in the official monetary system, so any tweaks by the RBI have little or no impact. At the same time, there is little or no resistance to the rise in prices from the public.  Resistance does not always mean that people need to protest or form a mob, but does mean that they resist the higher prices by buying less, thus pressurising the suppliers to reduce their prices. The RBI's interest rate hike is not going to create this demand side pressure.  Sadly, inflation often goes into a self sustaining cycle, where rises in prices are linked to rises in incomes. This happens both in the government and in many parts of the unorganised sector. The higher incomes support purchases, which in turn raises prices.  With the rise in interest rates, the RBI hopes that we will save more, borrow and spend less so that the money sloshing around in the economy is contained. But in this too, it is thwarted -- for purchase decisions are based on expectations as much as current realities. Rising prices make people and businesses tend to hoard goods to save themselves from buying the same at higher prices later. This further restricts the supply of goods in the market -- pushing prices further up.  The incentive to save due to higher interest rates has to be countered by a matching assurance that prices will not continue to rise --which is not possible by tweaking rates and money supply alone. Rising inflation in fact eats into the nominal interest rate (the stated rate), reducing its real effect on both borrowing and lending. In a system where people begin to believe that inflation is likely to rise faster than interest rates, it is smarter to borrow than to save, for the real (inflation adjusted) value of what will be returned is less than the paper value.  Unless the RBI can be seen to be totally in control of this process, reining in inflation with measured rises in rates -- it has a tool that blunts itself by being used. This, it cannot do alone --without stamping down on the other causes of price rise, the Reserve Bank seems to be fighting a lone, losing battle. 

Mid Day

Triple whammy for industry

“Ironically, the RBI move, ostensibly aimed at taming inflation, is unlikely to result in either lower inflation or promote growth,” ....

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Rate hike, not the remedy for all evils

....Going into the September policy, another key concern was whether the worsening global situation would persuade the RBI to hold rates steady. The RBI made it explicit that it stays watchful of the global situation, but prefers to accord priority to domestic developments at this juncture. .....

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Central bank’s war on inflation hurting growth: Mukherjee

Has the Reserve Bank of India taken its war on inflation a bit too far? After the mid-quarter policy review on Friday, the finance ministry seemed to be asking this question — almost. Reacting to the RBI’s decision of lifting the policy lending rate by a quarter per cent, finance minister Pranab Mukherjee highlighted that there were signs of growth being affected due to monetary tightening.......

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No Borrower, No Lender, Yet Willful Defaulter?

Now, the who, what, how of Willful Defaulting is governed by the RBI. Its Master Circular defines Willful Default to include ‘default by a unit in meeting payment or repayment obligations to the lender even when it has the capacity to do so’....

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The death of govt data in the information deluge

More recently, RBI governor D Subbarao bemoaned the absence of reliable data, especially advance estimates of GDP, revisions in industrial production numbers and the preference of wholesale price index (WPI) over consumer price index (CPI) as the measure for inflation. Almost no other country in the world uses WPI.....

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Govt panel to look into banks' capital needs

The government has formed a committee to look into the capital requirements of public sector banks in the light of the Basel-III norms, which the banks will start implementing from 2013. The finance ministry on Saturday reiterated that the government is committed to seeing its banks are well capitalised......

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Bank loses Rs 5L in bid to deny 9L VRS benefit

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The Central Bank of India spent Rs 5.33 lakh in a 10-year legal battle to avoid paying Rs 9.5 lakh as retirement benefit to an employee on the grounds that she died two days before they cleared her name for the voluntary retirement scheme (VRS). But both the Bombay High Court and the Supreme Court have ruled that Homai Darayas Postwala - an officer in the investment department - was entitled to the benefits....

New banks need to attune with national priorities: FM

With just 40% of India’s population having bank accounts, finance minister Pranab Mukherjee on Saturday exhorted banks to do more for financial inclusion. Speaking at the FE Best Banks Awards ceremony, Mukherjee said he expected “the new banks which are going to come would be in a position to effectively compete with existing players and attune themselves with national priorities”. This, the finance minister said, included government schemes for mandated lending, priority sector lending and on financial inclusion.......

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India needs lower taxes, supply side miracle – not rate hikes

...Playing with the value of citizens’ money through monetary policy is not right. It’s a breach of trust that citizens place in the value of the rupee. Supply side economics is moral as the government lowers taxes to give money back to the people to whom it belongs in the first place....

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